Your insurance agent told you that your Commercial General Liability Policy (CGL) provides “blanket contractual liability coverage.” What exactly does that mean?
Contractual Liability Coverage
To start, although many use this phrase, it is a misnomer. “Blanket” suggests that all contractual liability situations are covered by the policy, and this isn’t the case. The CGL policy protects the insured who has assumed liability for bodily injury and property damage in certain contracts called “insured contracts.” Examples of specifically named “insured contracts” are lease agreements and elevator maintenance agreements. Also included are hold harmless and indemnification agreements wherein the insured has assumed the tort liability of a third party for bodily injury and property damage. There are exceptions; there is no coverage, for example, for indemnifying railroads for certain types of work and for indemnifying architects and engineers for professional liability.
What Does a Standard CGL Policy Cover?
Assuming that a subcontractor indemnifies a general contractor for any and all damages, what kinds of claims might be covered and not covered under the subcontractor’s standard CGL policy? Here are some examples:
- An employee of a subcontractor is injured on the site. He files a Workers’ Compensation claim with his employer, but then sues the general contractor. The general contractor goes to sub to enforce the indemnification clause in the contract.
- Five years after a new subdivision is built, the foundations of some homes are beginning to crack because the site work was improperly done. The builder goes to the sub he’d hired to do the site work to enforce the indemnification clause in the contract.
- A subcontractor fails to perform the terms of the contract, and the general contractor sues for breach of contract. The sub’s CGL won’t respond because this isn’t a bodily injury or property damage claim.
- The subcontractor brings diesel fuel onto the jobsite and there is a spill, contaminating the land. The sub’s CGL won’t respond because this type of pollution claim isn’t covered by the CGL.
The CGL’s contractual liability coverage is broad, but certainly doesn’t apply to every situation. It’s also important to make sure that the contractual liability coverage in the policy hasn’t been modified by an endorsement. Many insurers try to restrict or even eliminate much of the coverage in the CGL.
Be sure to make your attorney aware of the coverage you have. An attorney should always be consulted before a contract is signed, and he will be better able to advise you if he understands the limitations of your insurance policy. Lastly, be sure to make your insurance advisor aware of any liabilities you’ve assumed under contract. While he can’t offer legal advice, he can let you know how your coverage compares to the coverage you’ve agreed to provide.